Our Opinion: 2015
Growth forecast in UK property
As volatility continues in currency, commodity and equity markets, investors are increasingly looking at alternative asset classes.We have experienced a higher level of interest in property and, in particular, the UK housing market is back under the spotlight.
The Halifax index tells us that the average UK house price was up 8% year-on-year for the three months to July 2015. Whilst house price values have grown over the last few years, wage growth has been sluggish. Hence, average property prices are back to 5 x average price-to-earnings ratio, which is seen as high and an indication that values are overheated. However, because of the incredibly low interest rates, mortgage payments represent a historic low of just 29% of income.
Despite stricter regulation from the Mortgage Market Review last year, mortgage approvals are increasing which implies a decent outlook for continuing house price growth in the coming months. However, rate increases are on the horizon, and the recently announced stricter tax implications for ‘buy to let’ mortgages will moderate any increase.
The size and pace of interest rate increases are likely to be gradual so unlikely to derail the housing market. UBS estimate that there will be 160,000 to 170,000 property completions this year – up 10% whilst still a little below the long term average
A key observation is the divergence between London prices and those in the rest of the country has come to a dramatic end. Knight Frank, a prime Central London estate agent, has just reported that London prices are growing by 2% year-on-year, compared to 12% in 2011. This compares to 8% in the rest of the UK.
UBS is predicting a 6% rise in property values over the coming twelve months.
Looking at other UK investments, commercial property is gaining attention. Despite strong recovery recently, prices remain 23% below their 2007 peak. Retail property has performed poorly and is only now coming out of decline. The outlook for commercial property for this year looks solid.
UK property remains a favoured investment for international clients. However, changing legislation means it has never been so important to get the right advice – from a tax, legal and investment prospective. Knightsbridge Wealth ensures its clients have the right team in place for their own unique requirements, to help reduce the risks at this time of market uncertainty.